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Rethinking the Principles of Bank Regulation: A Review of Admati and Hellwig's The Bankers' New Clothes

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  • Roger B. Myerson

Abstract

In an important new book, Anat Admati and Martin Hellwig raise broad critical questions about bank regulation. These questions are reviewed and discussed here, with a focus on how the problems of maintaining a stable financial system depend on fundamental problems of information and incentives in financial intermediation. It is argued that financial regulatory reforms can be reliably effective only when their basic principles are understood by informed citizens, and that Admati and Hellwig's book is a major contribution toward this goal, as it clearly lays out the essential case for requiring banks to have more equity.

Suggested Citation

  • Roger B. Myerson, 2014. "Rethinking the Principles of Bank Regulation: A Review of Admati and Hellwig's The Bankers' New Clothes," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 197-210, March.
    • Handle: RePEc:aea:jeclit:v:52:y:2014:i:1:p:197-210
    Note: DOI: 10.1257/jel.52.1.197
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    References listed on IDEAS

    as
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    4. Mathias Dewatripont & Jean-Charles Rochet & Jean Tirole, 2010. "Lessons from the Crisis," Introductory Chapters, in: Balancing the Banks: Global Lessons from the Financial Crisis, Princeton University Press.
    5. Charles A.E. Goodhart, 2009. "The Regulatory Response to the Financial Crisis," Books, Edward Elgar Publishing, number 13514.
    6. Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2012. "Guardians of Finance: Making Regulators Work for Us," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262017393, December.
    7. Darrell Duffie, 2011. "How Big Banks Fail and What to Do about It," Economics Books, Princeton University Press, edition 1, number 9371.
    8. Goodhart,Charles, 2011. "The Basel Committee on Banking Supervision," Cambridge Books, Cambridge University Press, number 9781107007239, November.
    9. Anat Admati & Martin Hellwig, 2013. "The Bankers' New Clothes: What's Wrong with Banking and What to Do about It," Economics Books, Princeton University Press, edition 1, volume 1, number 9929.
    Full references (including those not matched with items on IDEAS)

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The right direction
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2014-11-24 19:36:40

    Citations

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    Cited by:

    1. Joseph G. Haubrich, 2020. "How Cyclical Is Bank Capital?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 58(1), pages 27-38, August.
    2. Ms. Deniz O Igan & Thomas Lambert, 2019. "Bank Lobbying: Regulatory Capture and Beyond," IMF Working Papers 2019/171, International Monetary Fund.
    3. Christian Eufinger & Andrej Gill, 2017. "Incentive-Based Capital Requirements," Management Science, INFORMS, vol. 63(12), pages 4101-4113, December.
    4. Pietro Dindo & Andrea Modena & Loriana Pelizzon, 2019. "Risk Pooling, Leverage, and the Business Cycle," Working Papers 2019: 21, Department of Economics, University of Venice "Ca' Foscari".
    5. Gomes, João F. & Grotteria, Marco & Wachter, Jessica A., 2023. "Foreseen risks," Journal of Economic Theory, Elsevier, vol. 212(C).
    6. DeAngelo, Harry & Stulz, René M., 2015. "Liquid-claim production, risk management, and bank capital structure: Why high leverage is optimal for banks," Journal of Financial Economics, Elsevier, vol. 116(2), pages 219-236.
    7. Denise Hazlett, 2016. "A classroom experiment with bank equity, deposit insurance, and bailouts," The Journal of Economic Education, Taylor & Francis Journals, vol. 47(4), pages 317-323, October.
    8. Joseph G. Haubrich, 2020. "A Brief History of Bank Capital Requirements in the United States," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2020(05), pages 1-6, February.
    9. Thomas Url, 2020. "Robustes Wachstum der Nicht-Lebensversicherung sichert Privatversicherung 2019 Steigerung der Prämieneinnahmen," WIFO Monatsberichte (monthly reports), WIFO, vol. 93(9), pages 659-671, September.
    10. Dina Hosam Gabr & Mona A. ElBannan, 2018. "Consequences of Basel Accords on Bank Risk-Taking and Profitability: Evidence from Asian Countries," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 8(12), pages 1506-1531, December.
    11. Sumera Anis & Abdul Rashid, 2017. "Optimal Bank Capital And Impact Of The Mm Theorem: A Study Of The Pakistani Financial Sector," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 12(02), pages 1-21, June.
    12. Eufinger, Christian & Gill, Andrej, 2016. "Incentive-based capital requirements," SAFE Working Paper Series 9 [rev.], Leibniz Institute for Financial Research SAFE, revised 2016.
    13. Ogawa, Toshiaki, 2022. "Welfare implications of bank capital requirements under dynamic default decisions," Journal of Economic Dynamics and Control, Elsevier, vol. 138(C).
    14. Thomas Url, 2020. "Robust Growth in Non-life Insurance Secures 2019 Premium Growth in Private Insurance," WIFO Bulletin, WIFO, vol. 25(9), pages 75-86, November.
    15. Matteo Chinazzi & Stefano Pegoraro & Giorgio Fagiolo, 2015. "Defuse the Bomb: Rewiring Interbank Networks," LEM Papers Series 2015/16, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    16. Toshiaki Ogawa, 2020. "Welfare Implications of Bank Capital Requirements under Dynamic Default Decisions," IMES Discussion Paper Series 20-E-03, Institute for Monetary and Economic Studies, Bank of Japan.
    17. Pies, Ingo, 2015. "Die Ordnungsethik plädiert nicht für maßlose Gier, sondern für eine sorgsame Vermeidung intentionalistischer Fehlschlüsse," Discussion Papers 2015-6, Martin Luther University of Halle-Wittenberg, Chair of Economic Ethics.
    18. Hans Pitlik & Thomas Url, 2020. "Schätzung der Kosten staatlicher Regularien in der österreichischen Versicherungsbranche," WIFO Studies, WIFO, number 65933, January.

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    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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